- 15 Marks
FR – L2 – Q23 – Financial Reporting Standards and Their Applications
Question
The following is an extract from the financial statements of Crest Ltd on 31 December 20X3.
Property, plant and equipment
| Land and buildings GH₵ | Plant and equipment GH₵ | Computer equipment GH₵ | Total GH₵ | |
|---|---|---|---|---|
| Cost | ||||
| On 31 December 20X3 | 1,500,000 | 340,500 | 617,800 | 2,458,300 |
| Accumulated depreciation | ||||
| On 31 December 20X3 | 600,000 | 125,900 | 505,800 | 1,231,700 |
| Carrying amount | ||||
| On 31 December 20X3 | 900,000 | 214,600 | 112,000 | 1,226,600 |
Accounting policies
Depreciation
Depreciation is provided at the following rates.
On land and buildings: 2% per annum straight line on buildings only
On plant and equipment: 25% reducing balance
On computers: 33.33% per annum straight line
During 20X4 the following transactions took place.
(1) On 31 December the land and buildings were revalued to GH₵1,750,000. Of this amount, GH₵650,000 related to the land (which had originally cost GH₵500,000). The remaining useful life of the buildings was assessed as 40 years.
(2) A machine which had cost GH₵80,000 and had accumulated depreciation of GH₵57,000 at the start of the year was sold for GH₵25,000 in the first week of the year.
(3) A new machine was purchased on 31 March 20X4. The following costs were incurred:
Purchase price, before discount, inclusive of reclaimable sales tax of GH₵3,000: 20,000
Discount: 1,000
Delivery costs: 500
Installation costs: 750
Interest on loan taken out to finance the purchase: 300
(4) On 1 January it was decided to change the method of providing depreciation on computer equipment from the existing method to 40% reducing balance.
Required
Produce the analysis of property, plant and equipment as it would appear in the notes to the financial statements of Crest Ltd for the year ended 31 December 20X4.
Answer
Financial statements for the year-ended 31 December 20X4 (extract)
Property, plant and equipment
| Land and buildings GH₵ | Plant and machinery GH₵ | Computer equipment GH₵ | Total GH₵ | |
|---|---|---|---|---|
| Cost/valuation | ||||
| At 1 January 20X4 | 1,500,000 | 340,500 | 617,800 | 2,458,300 |
| Revaluation | 250,000 | 250,000 | ||
| Additions (W2) | 17,550 | 17,550 | ||
| Disposals | (80,000) | (80,000) | ||
| At 31 December 20X4 | 1,750,000 | 278,050 | 617,800 | 2,645,850 |
| Accumulated depreciation | ||||
| At 1 January 20X4 | 600,000 | 125,900 | 505,800 | 1,231,700 |
| Charge for the year (W1) | 20,000 | 51,191 | 44,800 | 115,991 |
| Revaluation | (620,000) | (620,000) | ||
| Disposals | (57,000) | (57,000) | ||
| At 31 December 20X4 | nil | 120,091 | 550,600 | 670,691 |
| Carrying amount | ||||
| At 31 December 20X3 | 900,000 | 214,600 | 112,000 | 1,226,600 |
| At 31 December 20X4 | 1,750,000 | 157,959 | 67,200 | 1,975,159 |
Workings
(1) Depreciation charges
Buildings = (1,500,000 – 500,000) × 2% = 20,000.
Plant and machinery:
New machine (17,550 × 25% × 9/12): 3,291
Existing plant (((340,500 – 80,000) – (125,900 – 57,000)) × 25%): 47,900
Total: 51,191
Computer equipment = 112,000 × 40% = GH₵44,800
(2) Cost of new machine
Purchase price (20,000 – 3,000 – 1,000): 16,000
Delivery costs: 500
Installation costs: 750
Interest on loan taken out to finance the purchase: 300
Total: 17,550
- Uploader: Samuel Duah